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Published on April 7, 2008

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CURRENT TRENDS IN GAMBLING INDUSTRIES WORLDWIDE:  CURRENT TRENDS IN GAMBLING INDUSTRIES WORLDWIDE William R. Eadington University of Nevada, Reno September 15, 2005 www.unr.edu/gaming LOTTERIES VS. CASINOS:  LOTTERIES VS. CASINOS Parallel Universes Minneapolis vs. Las Vegas Objectives: Revenue for the State v. Profit Maximization Mass Distribution Networks vs. Site Specific Venues Dream Buying vs. Adrenaline Rush Interface areas: Keno, VLTs, Megabucks Semantic difficulties: Gross sales vs. Gross Gaming Revenues; Retention rates vs. House Advantage; “Online” Gaming COMMERCIAL GAMING IN AMERICA, 2004:  COMMERCIAL GAMING IN AMERICA, 2004 Casinos (Non-Indian): $30.6 billion Casinos (Indian): $19.4 billion Lottery: $21.4 billion Pari-mutuels: $ 3.7 billion Card rooms, charity, bingo, other $ 3.6 billion Internet gaming (global) $ 4.2 billion TOTAL IN 2004 $78.6 billion* TOTAL IN 1982 $10.2 billion (0.8% of aggregate personal income) *not counting internet gaming Slide4:  Casinos Tribal Casinos Lottery & VLTs Pari-mutuels Bingos, card rooms, charities (Billions) ECONOMIC AND SOCIAL BENEFIT/COST RANKINGS OF TYPES OF GAMING:  ECONOMIC AND SOCIAL BENEFIT/COST RANKINGS OF TYPES OF GAMING Some Gaming Sectors or Forms are more benevolent than others. Possible ranking: Traditional Lotteries, bingos (“Soft” gaming) Destination resort casinos Urban or suburban casinos Convenience gambling: Gaming devices in bars and taverns, VLTs, slots arcades Ultra-convenient gambling: inter-active television or internet gaming, mobile phone wagering THE GAMBLING WORLD WITH AN EMPHASIS ON CASINOS AND CASINO-STYLE GAMING:  THE GAMBLING WORLD WITH AN EMPHASIS ON CASINOS AND CASINO-STYLE GAMING ECONOMICS OF CASINOS AND CASINO-STYLE GAMING:  ECONOMICS OF CASINOS AND CASINO-STYLE GAMING Latent demand that is realized with casino legalization Very strong economies of scale Importance of convenience, location Social backlash is hard to avoid unless gaming is a strong export Reluctance to let market forces determine the size of the industry Much competition for economic rents => Political until it reaches maturity Slide8:  TOP CASINO MARKETS IN UNITED STATES IMPORTANT TRENDS AND RECENT EVENTS WITH CASINOS IN THE UNITED STATES:  IMPORTANT TRENDS AND RECENT EVENTS WITH CASINOS IN THE UNITED STATES Private sector is the major benefactor Governments are often important revenue sharers Most gaming markets are mature (stable) Exceptions: Las Vegas, Racinos, parts of California Indian gaming Some new legalization, expansion Pennsylvania (2004), Florida (2005), Maine (2005); attempts in Maryland, Texas, Massachusetts Limited presence of convenience gaming Nevada, Montana, South Carolina (extinct), South Dakota, Oregon, West Virginia Less political backlash compared to Canada, other countries (so far) Slide10:  LAS VEGAS LAS VEGAS: MAJOR DEVELOPMENTS:  LAS VEGAS: MAJOR DEVELOPMENTS Strong current economic performance, increasing diversity of the entertainment product Mergers of major gaming companies: MGM Mirage Mandalay Bay and Harrah’s Caesars Opening of Wynn Las Vegas (April, 2005) at a CapEx of $2.7 billion Development projects: Venetian’s Palazzo, Wynn Encore; MGM Mirage’s CityCenter, other high rise residential The Strip will increasingly become a place to “live” rather than just to “visit” =>Manhattan West CASINO MARKETS ELSEWHERE IN THE UNITED STATES:  CASINO MARKETS ELSEWHERE IN THE UNITED STATES Most markets have achieved maturity Limited growth in gaming revenues Limited new capital investments Consolidation and diversification are important trends Increase loyalty, enhance revenues, control costs Hotels, Convention sales, Restaurants, Entertainment, Leasing retail space are all becoming profit centers with casinos AFTERMATH OF HURRICANE KATRINA ON GULFPORT AND BILOXI, MISSISSIPPI, AND NEW ORLEANS:  AFTERMATH OF HURRICANE KATRINA ON GULFPORT AND BILOXI, MISSISSIPPI, AND NEW ORLEANS Slide15:  KID’S QUEST FACILITY, GRAND CASINO GULFPORT CANADA: CURRENT STATUS AND ISSUES:  CANADA: CURRENT STATUS AND ISSUES Government ownership => Captures substantial Economic Rents for Provinces Much greater presence of convenience gaming than in USA => VLTs (all provinces but Ontario) Much more controversy over problem gambling Government ownership is a vulnerability Conflicts of objectives Regulator and owner or owner/operator Revenues or Mitigation, i.e. Ontario Trends toward diversification: Plans to rebuild Casino de Montreal with Cirque de Soliel Slide17:  FALLSVIEW CASINO, NIAGARA FALLS, ONTARIO THE GLOBAL VIEW: ADDRESSING LEGAL CHALLENGES TO PROTECTED MONOPOLIES OR TO INCONSISTENT LAWS :  THE GLOBAL VIEW: ADDRESSING LEGAL CHALLENGES TO PROTECTED MONOPOLIES OR TO INCONSISTENT LAWS Two major parallel developments: European Union: The Gambelli Case and similar legal challenges The World Trade Organization: The Antigua Case in challenging the United States’ prohibitions against commercial internet gambling GAMBELLI: COMMON PRINCIPLES:  GAMBELLI: COMMON PRINCIPLES Harmonization implies free and fair competition unless there is a compelling reason for a member state to protect its citizens from social harm Proportionality implies that the extent of protections offered need to be related to the economic power of monopolies claimed via Subsidiarity The challenge is in finding appropriate social protections to allow the continuation of monopoly power and capture of economic rents ANTIGUA V. THE UNITED STATES: COMMON PRINCIPLES:  ANTIGUA V. THE UNITED STATES: COMMON PRINCIPLES Under the General Agreement on Trade and Services, the United States agrees to follow the principles of Market Access and National Treatment Exceptions come in the form of protection of Public Morals April 2005 finding of WTO court suggested inconsistency in the Interstate Horse Racing Act (2000) Can technical corrections keep the United States from having to remove its prohibitions? OTHER IMPORTANT FACTORS:  OTHER IMPORTANT FACTORS Growing popularity of internet gambling among customers in the United States Unwillingness of policy-makers to impose penalties on consumers “Grey area” gambling products (Fantasy Football) Difficulty of enforcement Interest in the United States in using the Internet as a delivery system for such products as lottery Success of recent launches of British internet gaming companies Party Gaming at £4.7 billion; next is BetFair Slide22:  THE UNITED KINGDOM THE UNITED KINGDOM: “THE BEST LAID PLANS…”:  THE UNITED KINGDOM: “THE BEST LAID PLANS…” Recognized need to modify Gaming Act 1968 (1999) Obsolete and eccentric law; impacts of new technology Budd Commission and the Government Response (2001 and 2002) Principles of competition, anti-protection, and treating problem gambling as an externality Scrutiny Committee and attempts to reshape outcome (2003 and 2004) “Many Small” versus “Few Big”; Limit the ratios of slots to tables Political backlash Outcome: Only one super-casinos (1,250 slot machines) and 16 other “large” and “small” casinos LESSONS TO BE LEARNED:  LESSONS TO BE LEARNED Even with careful study and analysis, it is sometimes very hard to control the process and the ultimate outcome It is hard to persuade the general public that casinos should be offered in a free market environment At least with regard to gaming, the British are evolutionary, not revolutionary OBSERVATIONS ON CASINOS IN EUROPE:  OBSERVATIONS ON CASINOS IN EUROPE Aversion to the American style of casino gaming Existing casinos smaller, protected, less diversified British aversion to “Super Casinos” Gaming industries often protected monopolies Justified by “good causes,” social controls Significant proliferation of convenience gaming Likely to become increasingly problematic Possibility of Changes in the competitive environment European Union => Harmonization Small country developments => Domino effects Changing patterns of mobility in Europe: the cheap airline phenomenon AUSTRALIA/NEW ZEALAND: MATURE MARKETS & BACKLASH:  AUSTRALIA/NEW ZEALAND: MATURE MARKETS & BACKLASH Consolidation and diversification Preserving profitability, capturing value Strong sense that gambling has been allowed to become too prevalent 3.5% of API spent on gambling “Harm Minimisation” strategies being debated and adopted, regardless of evidence of effectiveness Politicians “must act” to improve public concerns ASIA: THE EMERGING GROWTH MARKET:  ASIA: THE EMERGING GROWTH MARKET End of Prohibition and the Pursuit of Opportunity High level of enthusiasm from Asian customers Macao: Moving from an “Outlaw” industry to “Las Vegas of Asia” Singapore: Enhancing the attractiveness of a prosperous but boring city, and controlling the social impacts Korea: Opening the doors to casino gaming by citizens Japan, Thailand, Taiwan, India, China: Watching others and trying to decide what to do Slide28:  MACAO: THE NEW GOLD RUSH MACAO: THE LARGEST GAMING VENUE IN THE WORLD:  MACAO: THE LARGEST GAMING VENUE IN THE WORLD New Law passed in 2002 2004 Gross Gaming Revenues at over $5 billion; 2005 GGRs over $6 billion GGRs are 98% table games; 90% baccarat, 70% private room VIP play (problematic for regulators) Growth rate of 20%+ By 2006-2007, major new casinos by Wynn Resorts, The Venetian, MGM, Melcor, Galaxy, others Slide30:  THE SANDS Slide31:  INTERIOR OF THE SANDS Slide32:  SINGAPORE SINGAPORE: “THE BEST CURRENT OPPORTUNITY IN THE WORLD”:  SINGAPORE: “THE BEST CURRENT OPPORTUNITY IN THE WORLD” Modern city-state of 4 million, high per capita income, honest government Government concerned about mitigating unintended adverse consequences: Entrance fees of S$100/S$2,000 for Singaporeans; limited local marketing; limited local credit Two casinos to be given exclusive franchises in Singapore Primary interest in Integrated Resort Non-gaming amenities important Low to moderate tax rate (15% range; 5% for VIPs) Originally 19 bidders; now short-listed to 12 Give out Marina Bay license, then Sentosa Island Short list 4 or 5 companies; require them to submit bid on land lease & choose the highest ADDRESSING BACKLASH FROM CONCERNS OVER PROBLEM GAMBLING :  ADDRESSING BACKLASH FROM CONCERNS OVER PROBLEM GAMBLING Important concern in many jurisdictions, with parallels drawn between gambling and alcohol abuse, drug abuse, and tobacco Greater pressure when heavy locals’ gambling, government ownership, “ugly” gambling Risk of politically driven constraints that may not address the issues: “Symbolic regulation” CURRENT UNDERSTANDING OF PROBLEM & PATHOLOGICAL GAMBLING:  CURRENT UNDERSTANDING OF PROBLEM & PATHOLOGICAL GAMBLING Prevalence studies suggest 1% probable pathological and 5% probable problem Within a casino or gaming venue, the proportion of customers who are P&P is likely quite a bit higher than these averages Depends on locals’ v. tourists as customer base Proportion of revenues from P&P gamblers is estimated as high as 30% (Australia, Canada) Unsure what causes of P&P gambling are Used to be seen as a “sin,” then as a “vice.” Now it is increasingly viewed as a disease Illusion of control, personality disorder, impulse control, physiological, degenerative disease STRATEGIES TO ADDRESS PROBLEM GAMBLING:  STRATEGIES TO ADDRESS PROBLEM GAMBLING Ignore the problem and try to manage the political consequences Treat this as a public relations exercise “Harm Minimization:” Place constraints on gaming operators or facilities that purportedly will mitigate P&P gambling Reverse technologies, inconvenience all customers “Identify and Isolate:” Use various schemes to limit or deny access to gaming venues to those who are self-abusive Consistent with self-exclusion and with involuntary exclusion Work toward a concept of “gambling licenses” as a revocable privilege for customers OTHER AREAS OF IMPORTANCE: PROBLEM GAMBLING:  OTHER AREAS OF IMPORTANCE: PROBLEM GAMBLING In many jurisdictions, this has become the most important policy challenge Problem seems to become more severe with gaming devices permitted outside of casinos Severe backlash in Australia, New Zealand, Canada, North Carolina Strategies for containment: Education, treatment, research Casino strategies: Signage, support helping groups, self-banning, involuntary exclusions UNDERLYING PRINCIPLES FOR GOOD STRATEGIES TO DEAL WITH PROBLEM GAMBLING:  UNDERLYING PRINCIPLES FOR GOOD STRATEGIES TO DEAL WITH PROBLEM GAMBLING Evidence-based approaches Need for resource allocation for research, education, and treatment programs Support is increasingly coming from economic benefactors, i.e. Canadian provincial governments, State of Nevada MAJOR CHALLENGES FOR GAMING INDUSTRIES EVERYWHERE (INCLUDING LOTTERIES):  MAJOR CHALLENGES FOR GAMING INDUSTRIES EVERYWHERE (INCLUDING LOTTERIES) Find an appropriate balance of how much gambling should be present in society Establish regulatory and legal structures that are politically stable and respected by the public Address the issues of problem gambling in a pro-active and effective way EXPLORING THE FUTURE OF GAMBLING AND COMMERCIAL GAMING:  EXPLORING THE FUTURE OF GAMBLING AND COMMERCIAL GAMING Attend the University of Nevada Reno’s 13th International Conference on Gambling and Risk Taking, Lake Tahoe, Nevada, May 22-26, 2006

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